Debt Settlement?

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Definition

Debt Settlement is when both the debtor and creditor agree upon a reduced amount owed and payments are made on the new balance. 

There are two different ways to a Debt Settlement:

1- Consumer Proposal

2- Debt Management Program

A Consumer Proposal is a legal process working with an Insolvency Trustee to reduce the amount owed and a payment plan. A consumer proposal also provides immediate stoppage of creditor actions against the debtor like collection calls, court actions and garnishments. It includes all unsecured creditors including CRA debt.

A Debt Management Program helps the debtor negotiate a payment plan with the creditors for the full amount that is owed. Unlike a Consumer Proposal, there is no reduction in the amount owed. Payments are then made to the debt management program and they take a fee and send the rest of the money to the creditors. 

Both a Consumer Proposal and a Debt Management Program will stay on your credit report as a settlement program for 3 years after your final payment.

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LAYMEN TERMS

If you have debt that you simply cannot pay back and you are falling behind in the payments then it is best to seek out a Debt Settlement. 

Depending on the amount owing you can decide to either do a Consumer Proposal where an Insolvency Trustee negotiates with the creditors for a reduced principal balance or a Debt Management Program where you must pay back the full amount owing but usually without interest charges

HOW DOES THIS TERM APPLY TO YOU

If you have $10,000 in credit card debt and you are three months behind in making payments it is most likely that collection calls start coming in daily and you would start to feel suffocated by the debt.

You can speak with either an Insolvency Trustee or a Debt Management Program and they will work with your creditors to stop the collection calls and negotiate a better payment plan with either lower interest rates or for a lower agreed upon principal amount owing.

Once the new amount owing is negotiated then you will begin to either make lump sum payments or monthly payments to pay off the debt.

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